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The minimum wage continues to be a contentious issue across the world’s largest economy. Since President Donald Trump is unsure what to do about the federal minimum wage, which has remained unchanged since 2009, many states are adopting the Fight for $15 crowd’s demands. But as labor activists and liberal politicians enact this measure, there is a victim being neglected: teenagers.
The Mercatus Center, a free market think tank, released a new paper, titled “Declining Teen Employment,” that finds young Americans overall are working less. The study focused primarily on a demographic that has been hit the hardest in the last 20 years: teenagers 16 to 19.
The organization reports that the rate of labor force participation (LFP) for this demographic is just 34%. Researchers note that the LFP has been on a downward trend for the last two decades, but it has fallen sharply among teens in recent years: 52.7% in 1994, 43.9% in 2004, and 34% in 2014.
Youth unemployment (16 to 24) is just as concerning: 9%.
What’s to blame? The minimum wage. And the paper contends that this factor is changing schooling and workforce behaviors; with fewer job opportunities, it is difficult to contribute to “human capital accumulation.”
“Higher minimum wages have led both to fewer teens in school and employed at the same time, and to more teens in school but not employed, which is potentially consistent with a greater focus on schooling. We find no evidence that higher minimum wages have led to greater human capital investment. If anything, the evidence points to adverse effects on longer-run earnings for those exposed to these higher minimum wages as teenagers.”
Researchers listed several other findings: relative income did not fall, teen idleness increased, teens faced more competition from immigrants, and unemployed teens focused more on schooling.
But why does a higher minimum wage affect teenagers so much?
No Jobs for Young People
If you were a small business owner and you had to pay your staff a $15 minimum wage, who would you hire? An unskilled, inexperienced 16-year-old, or a skilled, experienced 45-year-old? Chances are, it would be the latter.
Should a mom and pop shop be forced by the government to offer a higher wage than they could afford, or what the market would dictate, then they would not want to hire a teen employee. It would require too many resources, much of which is already limited by the company, to be allocated to training. They just can’t afford it.
For a group that already lacks soft skills – communication, listening, work ethic, time management, and motivation – a rising minimum wage is detrimental to their professional development. It is great that teens are generally focusing on their education, but without exposure to the real-world, especially at a young age, career advancement can be considerably hindered. Many jobs go left unfilled because employers can’t find candidates with even the most elementary soft skills – economists are calling it the “soft skills gap.”
A $15, $25, or $50 minimum wage hurts the very people unions and protesters claim they want to protect: immigrants, the unskilled, the uneducated, youth, and others lacking human capital.
When the federal minimum wage climbed 41% between 2007 and 2009, the teen jobless rate went up.
Whether it is Ontario or California, the laws of basic economics always rear their ugly heads in the labor market. Labor is a commodity, and is thus confined to supply and demand. There is an enormous supply of teens who can flip burgers, push a mop, or place items on grocery store shelves. But the level of demand is insufficient, and it certainly does not warrant a so-called living wage.
Making Teens Great Again?
So far this year, the U.S. economy has added more than 500,000 jobs, and President Trump promises even more job growth for the remainder of 2018. Wages are up, the jobless rate is 4%, and workplace investments are on the rise. The bull market appears to have some steam still.
But what about the workers of tomorrow?
It is true that the overall LFP rate has improved in 2018, but it still stands at a 40-year low of 63%. It will remain a significant economic challenge for current and future administrations.
The current slate of policy proposals to encourage more young people into the job market is inadequate, primarily because it comes from a statist, interventionist perspective. These endeavors only price out teen laborers.
Moreover, we can’t omit societal trends and workforce behaviors from the discussion. Let’s be honest: the mentality of a teen in the 1950s is very different from that of a teen today. The neoteric concepts – participation trophies, something for nothing, and everyone is entitled to everything – have diminished the nation’s character.
If teens and workers in their 20s are abandoning human capital accumulation and embracing the idea that they should be paid a lot of money for merely existing, then the country’s fabric is hanging on by a thread. Thankfully, if the polling is true that Generation Z is the most conservative generation since the Silent Generation, then they will be the saviors. This means they may also grasp basic economics, which could then lead to the elimination of the minimum wage and help the next generation of teens.